Has the REE industry been its own worst enemy?

Rare earth prices aren’t depressed. They are just more normal. And the world is adjusting. It has to adjust: after all, you could make an argument that the REE industry has made a bit of a hash of it all. And that includes the Chinese.

Look at prices at the end of 2010, before the 2011 surge which saw ridiculous and unsustainable levels reached. Here is a list of prices published by ABM Amro in December 2010:

In fact, as you will notice, prices of some of the elements are still higher today (in the apparently “depressed” market) than they were back at the end of 2010.

ABN Amro was considering the potential shortages of rare earths. But, remember, by December 2010 the world had woken up to the whole rare earth story, the incident between China and Japan which had led the former to suspend REE exports to Japanese companies had blown up just two months previously, and suddenly we had a profusion of non-China REE explorers. In fact, that December 2010 report has Mountain Pass and Mt Weld opening in 2011, Alkane Resources’ Dubbo project in late 2011 and Arafura Resources’ Nolans Bore in 2012. In Canada, the Holdas Lake project (Great Western Minerals) and Thor Lake (Avalon Rare Metals) were at feasibility stage.

The American players also had the backing of Washington. In October 2010 the U.S. House of Representatives had passed the Rare Earths and Critical Metals Revitalisation Act which was aimed at supporting the discovery and development of U.S. REE projects.

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This week we have heard on Investor Intel from both J.P. Morgan and Jack Lifton on the subject of Molycorp and its problems in not being able to move much of the cerium it will produce. But this problem was evident three years ago: ABN Amro back then said that “many of the projects being developed or restarted outside of China are overweight in light REE meaning that, as a whole, total REE production may increase in the medium term but the absolute supply of heavy REE will lag that of lighter REE. It is this that is worrying some governments and consumers, and why international REE exploration results are now being scrutinised for heavy REE content in every drill result”.

Who was listening?

Yesterday Jack Lifton, addressing the abundance of LREE, said this: “The solution is to have the smallest capacity possible to process just the heavy rare earths and yttrium in the residues from the removal of the light rare earths. The more of the feed stock that is of heavy rare earths and yttrium the better. Neither Molycorp or Lynas considered this possibility and neither one of them has ownership or control of a heavy rare earth, yttrium deposit nor has either one built a heavy rare earth, yttrium capable separation facility.”

ABN Amro also got it (partly) right on another matter, and this was that long before the whole Japanese “replace, reduce and recycle” move got a full head of steam. They wrote: “Another potential medium to long-term REE supply source is from scrap electronics, where advances in recycling technology might eventually see a total of about 300,000 tonnes of REE recouped — but that is years away”. But not as many as the analysts three years ago imagined.

The other area where the REE sector shot itself in the foot —and again this applies also to the Chinese — was not assuring end-users that there would be reliable supplies (and at a reasonable cost). The Chinese letting prices soar in 2011, and making noises about further export restrictions, together with the further delays to a raft of Western projects, quite understandably made end-users nervous. Very nervous indeed, and their efforts to reduce their dependence has come back to haunt the REE sector.

And the trend continues. This month we have seen reports that Showa Denko has come up with what the Nikkei news service calls “a landmark magnetic alloy for industrial robots that does not use any dysprosium”. The company says it has developed a way to mass-produce a dysprosium-free magnetic alloy by changing the metal’s crystal structure through a special thermal process.

And Shin-Etsu says that, although rare-earth materials prices have fallen to less than 20% of their peak, the company is still developing new products that use less of the material “because the price remains subject to volatility due to Beijing’s firm grip on exports“.